Mutual funds have become one of the most popular investing options in India for both new and experienced investors due to their diversity and expert management. As participation increases, many first-time investors are unsure about the documentation requirements, especially around demat accounts.
A common question is: Do I need a demat account for mutual funds? The clear answer is no. Mutual fund investments can be made with or without a demat account, depending on the chosen mode of investment.
Key Takeaways
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A demat account is optional, because mutual fund units can be held in statement of account (SoA) form with AMCs and registrars.
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Investors can invest without a demat account through AMCs, SEBI-registered intermediaries, registrars, and distributors using SIP or lump sum forms.
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Investing without a demat account reduces complexity, but can result in many folios and different statements.
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Demat-based investment is suitable for multi-asset investors, whilst non-dematerialized methods are suitable for mutual fund-only participants.
Understanding Demat Account
A demat (dematerialised) account is an electronic account in which securities like shares, bonds, ETFs, and certain mutual fund units are held in digital form with an NSDL or CDSL-linked depository participant. It substitutes physical certificates with book-entry records, allowing for smooth settlement and transfer of securities on stock exchanges or via off-market trades. A demat account is often necessary for equity investment and trading since SEBI requires dematerialisation of listed securities to enable secure, uniform handling.
Asset Management Companies (AMCs) and their Registrar and Transfer Agents (RTAs) issue and record mutual fund units, which can be kept in non-demat form as a statement of account (SoA). This implies that mutual funds do not require a demat account.
Investors can purchase, transfer (restricted to specific cases like adding a joint holder or transmission to nominees), retain (under the most recent SEBI framework), and redeem units solely in folio format. A demat account is required primarily when investors purchase exchange-traded funds (ETFs) or listed fund units on stock exchanges.
Also Read: Difference Between NSDL and CDSL
Ways to Invest in Mutual Funds
Mutual funds can be accessed through a variety of methods, each with different levels of flexibility, fees, and participation, though none mandate a demat account for standard schemes.
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Systematic Investment Plans (SIPs): SIPs allow you to invest a certain amount at regular intervals (for example, monthly), which helps to smooth out market volatility and encourages disciplined investment. They are commonly registered using One Time Mandates (OTM) or UPI AutoPay, which authorise automatic debits from the investor’s bank account.
SIPs can be set up directly with AMCs, registrars, or SEBI-registered intermediaries by linking a bank mandate. The units are credited to your folio rather than a demat account.
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Lump sum investments: A lump sum investment is a one-time allocation of funds into a specific plan, which is often used when you have surplus funds to put to use. These investments may be made online or offline in non-demat mode, and the registrar will register the units against your folio and PAN.
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Direct mutual fund investments: Direct plans are acquired directly from AMCs, without the participation of a distributor, and typically have lower expense ratios than ordinary plans. They may be accessed digitally where investors only need to complete KYC, provide bank information, and transact through permitted channels.
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Online and offline modes: Investors can invest in mutual funds without a demat account using a variety of online and offline channels. These include AMC websites, physical application forms at AMC or distributor locations, and registration platforms.
Steps to Start Investing in Mutual Funds without Demat Account
The process for how to invest in mutual funds without demat account is fully supported by the current SEBI and industry infrastructure. Here’s how you can start your investments:
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Complete prerequisites: Ensure that you have an active PAN, KYC-verified status in the mutual fund system, and a savings bank account with digital payment capabilities. Provide your mobile number and email ID so AMCs and registrars can send one-time passwords (OTPs), alerts, and statements.
As of mid-2025, SEBI strictly requires all single-holder mutual fund folios to have either a nominee or a formal "Opt-out" statement. Accounts lacking this are blocked or frozen for debit (withdrawal) transactions.
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Invest directly through AMCs:
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Visit the official channels of the chosen AMC.
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Register using PAN and contact details.
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Select a scheme category (equity, debt, hybrid, solution-oriented, etc.)
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Choose the specific scheme and option (growth or income distribution).
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Decide if you want an SIP or invest a lump sum.
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Enter the amount and bank details.
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Authenticate the transaction using net banking or UPI.
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Units are allotted in folio form and recorded with the AMC and its registrar.
Note: There is no requirement to link or open a demat account at any stage.
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Use SIPs without a demat account: Select SIP from the same channels, enter the amount, frequency, and start date, and then file an e-mandate or NACH mandate with your bank. After the mandate is authorised, installments are automatically deducted on the dates specified, and matching units are added to your folio.
SIPs can be paused, modified, or stopped using the same non-demat channels; the entire lifespan occurs outside of the demat framework for ordinary mutual funds.
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Invest via registrar and intermediary channels: Industry registrars and SEBI-registered intermediaries provide unified interfaces for transacting across various AMCs without requiring a demat account. Once enrolled, you may make purchases, redemptions, switch, and non-financial requests across eligible schemes, with holdings stored in SoA-based folios.
Advantages of Having a Demat Account to Invest in Mutual Funds
Some investors continue to choose demat-based mutual fund holdings, raising the recurring question: Do I need demat account for mutual funds if I already invest in shares and ETFs? The advantages relate mainly to centralisation and convenience including the following:
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Centralised portfolio view: A demat account enables investors to see equities, ETFs, certain debt instruments, and eligible mutual fund schemes all from a single login. This can make it easier to monitor asset class allocation and analyse overall market-linked exposure.
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Simplified tracking and record-keeping: Investors get consolidated statements from depositories that contain both demat-held mutual funds and other investments, minimising fragmentation. For individuals who already have a demat account for trading, adding mutual funds may eliminate the need to use several interfaces.
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Operational convenience for multi-asset investors: Investors who regularly trade multiple securities prefer the convenience of placing orders using a familiar platform and viewing holdings all in one spot. For such individuals, the question of whether I need a demat account for mutual funds becomes more about workflow integration than a regulatory requirement.
However, demat accounts typically involve annual maintenance charges and sometimes transaction-related fees, which purely mutual fund-focused investors may want to avoid.
Alternatives to Having a Demat Account for Mutual Funds
There are multiple alternatives available that are fully compliant and widely adopted, including the following:
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Direct plans via AMCs: Investors can choose direct plans on AMC channels. This benefits them with lower expense ratios compared with regular plans because distributor commissions are excluded. This route is suitable for investors who are comfortable with selecting schemes independently, without the need for a demat interface.
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Regular plans through distributors: Bank-led and independent distributors offer regular plans. Here, commission is embedded in the expense ratio, and investors receive guidance and service support. Units are still held as folios in the registrar system, and no demat account is required for purchases or redemptions.
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Registrar and industry platforms: Registrars provide digital access for investors to view and transact across schemes serviced by them, using PAN-based folios. MF Central enables portfolio tracking and transactions across all AMCs in non-demat form. Recent SEBI-encouraged changes have strengthened these non-demat mechanisms.
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Intermediary-led MF interfaces: SEBI-registered intermediaries, including some brokers and investment platforms, allow investors to place mutual fund orders that settle directly into folios maintained by registrars and AMCs. This option offers an app- or web-based experience without converting mutual fund units into demat form, keeping costs and documentation simpler for mutual fund–only investors.
Drawbacks of Not Using a Demat Account
While folio-based, non-dematerialised investment is widely used and cost-effective, it has several disadvantages as compared to demat-centric consolidation. This can lead to the following drawbacks:
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Multiple statements and folios: Investing across several AMCs may lead to multiple folios. This can include multiple AMCs or registrars sending their own statements, potentially cluttering your email and complicating record-keeping. Although consolidated statements and industry utilities can reduce some of this complexity, investors may still feel that demat-based reporting is more tightly integrated.
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Fragmented tracking: Without a single demat interface, investors may need to visit more than one portal or rely on additional tools to monitor asset allocation and performance across all holdings. This extra effort can be manageable for small portfolios but more demanding for investors with many schemes and AMCs.
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Less alignment with stock investing workflows: Investors who already operate heavily through demat and trading accounts might find using separate mutual fund channels less convenient. For such investors, even though the regulatory answer to do I need demat account for mutual funds remains no, the practical preference may tilt towards demat-based holding for uniformity.
Also Read: Mutual Funds vs Equities
Conclusion
Mutual fund units transferred between demat and non-demat modes are usually subject to a short processing freeze, typically around 10 days. This temporary restriction, introduced along with the transfer facility, is intended to prevent fraudulent or duplicate transactions during the conversion process. Investors who already have demat accounts for listed securities may still choose to route some or all mutual funds through that interface for consolidation, but the core question of do I need a demat account for mutual funds is typically answered with "no, it is optional, not mandatory.
